It’s time to load on puts?

by bragghy

Forgive me the language/grammar, I am Italian

I am 100% certain that we’ll see a small correction in the coming weeks. It might even be a big one. Follow me.

  1. VIX Index is heading for its “support level” at 22. As you can see on the daily chart, when the market priced in the fear for the pandemic and the sell off started on the 24th, the VIX raised its threshold, and we are now headed back for that. In my opinion it’s likely that volatility will rise and that we are not ready to go lower than 22 unless there are some new bullish fundamentals. And even if we break 22 we shouldn’t go lower than 20.2
  2. We are heading for all time highs on S&P 500. Huge psychological milestone coming up. There will be a lot of headlines saying that we reached ATH on stocks just a few months later the whole crisis started and there will be a lot of profit taking and after a few red days, it could quickly become panic selling.
  3. If you look at options prices, in particular spreads, it’s easy too see that the sentiment is overly bullish compared to the actual real probabilities based on historical data
  4. As stocks are volatile assets, the S&P 500 obviously deviates quite a lot form its 200 week moving average. Hower, it stays in a certain range and it’s pretty rare that it goes 25% higher than its 200 week moving average, and we are already there
  5. RSI on the weekly chart is heading for its “resistance level” of the past 2 and a half years in the 63-68 range, when it reached it previously we had a correction 75% of the time.
  6. Daily volume is at its minimum since the corona crash
  7. There’s a lot of uncertainty with fundamentals, such as the election that is coming up, and the COVID cases that are rising rapidly in a lot of developed economies as we are heading for the autumn

The early target for SPY for this correction is in the 306-308 range imo.

Positions:

  • 9/04 VXX 40c
  • 9/11 SPY 310p

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.